The hotel industry is crumbling – and Uncle Sam may not be coming to the rescue.
More than 2 million hospitality jobs have already disappeared during the pandemic. Within the next six months, a stunning 38,000 US hotels could be forced to close, according to the American Hotel & Lodging Association.
“If we don’t get a vaccine soon and business doesn’t return, it’s going to get much worse,” Best Western CEO David Kong, the industry’s longest-serving CEO, told CNN Business.
Kong, who in March met with President Donald Trump at the White House to discuss federal aid, expressed deep frustration with the leaders of Congress for failing to reach a bipartisan agreement on another round of fiscal stimulus.
“They are just so stuck in their positions. I feel so aggravated by it. Why can’t we work something out?” the Best Western CEO said.
Like many hotels, Best Westerns are owned by franchisees, rather than a deep-pocketed corporation. These Best Western small businesses have cut an estimated 20,000 jobs since the start of the health crisis. That’s on top of the layoffs of 800 corporate associates at the parent company that owns the hotel brand.
“We’re putting them out on the street during a pandemic,” Kong said. “They don’t have a safety net. It’s a very heart-wrenching situation.”
With stimulus talks stalled, leading hotel CEOs wrote a letter to Trump on Thursday pleading for help.
“Your engagement is desperately needed to support struggling businesses, stem the impending wave of foreclosures and save millions of jobs,” the hotel CEOs wrote.
‘There is so much pain and suffering’
Politicians may not feel a sense of urgency to spend trillions more because of the uneven nature of the recession.
Although hotels, airlines, restaurants and cruise lines are in crisis, other parts of the economy are recovering swiftly – or already have. Home prices are soaring. Millions of jobs have been added to the economy. The S&P 500 has raced back to record highs. And companies like Amazon (AMZN), Zoom (ZM) and Apple (AAPL) are booming.
“There is so much pain and suffering, but they’re numb to it because the stock market is doing well and unemployment is below 9%,” Kong said.
Even the deadlock in Congress on another round of fiscal stimulus has failed to deal a meaningful blow to the stock market. The S&P 500 is just 2% away from its early September record high.
“A lot of people would say they don’t understand why the market is seemingly going up and up,” Kong said. “That’s not Main Street. That’s Wall Street. They don’t seem to feel the pain of most businesses.”
A broken-down car away from disaster
Maura Robson was working full-time at a Holiday Inn in Webster, New York, when the pandemic erupted. The 31-year-old mother has made the difficult decision to stay home because her hotel can’t afford protective gear for its workers and she doesn’t want to get her newborn sick. Plus, Robson’s nine-year-old stepson is going to school on a fully remote basis.
“We saved everything we could from the last stimulus package. But now we’re a car breaking down away from a really bad situation,” said Robson, whose husband’s salary covers the rent.
Robson, a self-described “hardcore Democrat” who campaigned for Hillary Clinton, expressed dismay at House Speaker Nancy Pelosi as the deadlock continues.
“I am furious at Congress. Nancy Pelosi is shooting Democrats in the foot and she’s shooting American workers in the foot,” Robson said.
After unilaterally pulling out of stimulus talks last week, President Donald Trump reengaged and upped his stimulus offer to $1.8 trillion. But that’s still well shy of the $2.2 trillion stimulus bill passed by the House of Representatives.
“There is a $400 billion gap. I get that. But it is really, really hard to make ends meet,” Robson said.
Pre-election stimulus chances fade
Pelosi wrote a letter to House Democrats Thursday explaining that beyond the dollar amount, key differences remain over a strategic plan to fight the pandemic as well as funding for state and local government, support to small businesses and childcare funding.
“To our constituents, we promise: HELP IS ON THE WAY,” Pelosi wrote. “It will be safer, bigger and better, and it will be retroactive.”
Although Pelosi and Treasury Secretary Steven Mnuchin continue to negotiate, Senate Republicans have balked at the price tag. And Senate Majority Leader Mitch McConnell appeared to put an end to any hope of a pre-election stimulus deal Thursday by saying he has no plans to bring to the floor any package at $1.8 trillion or above.
Meanwhile, the pain in the hotel industry continues – and it could get worse if the recent rise in coronavirus infections worsens, as many health experts expect.
Shares of Marriott (MAR) and Hyatt (H) are down nearly 40% apiece on the year, a far cry from the S&P 500’s 8% gain.
The CNN Business Recovery Dashboard shows that hotel occupancy is down by nearly a third from pre-crisis levels.
Revenue per available room, a key metric of financial health in the hotel industry, has been cut in half over the past year, according to Morgan Stanley. Room rates are down by about a quarter.
Main Street bailout disappointment
In the industry letter on Thursday, the hotel companies asked the Trump administration to encourage the Federal Reserve to modify and expand the Main Street Lending Program. Although authorized to lend out $600 billion, the Fed’s Main Street program had made a mere $2.2 billion of loans as of the end of September. And those are funds that hotels badly need.
Kong, the Best Western CEO, complained that the lending guidelines for Main Street are too restrictive. Most struggling hotels simply don’t qualify for loans.
“Banks are not in the business of lending money to businesses that are failing. Small and medium-sized businesses are struggling and they can’t get help,” he said.
Fed chief Jerome Powell said during a press conference last month that officials are considering changes that would address underwriting concerns held by banks. But he also highlighted legal limitations.
The 2010 Dodd-Frank financial reform law made it clear the Fed is permitted to lend only to solvent borrowers, not broke ones.
“For many borrowers, they’re in a situation where their business is still relatively shut down, and they won’t be able to service a loan,” Powell said. “So, they may need more fiscal support.”
In other words, this is a problem for Pelosi, Trump and McConnell to address – not Powell.